Third quarterly report for the year 2015-16 released by the State Bank of Pakistan on 1st July, 2016 contains an objective assessment of the economy together with policy advice in weaker areas. Another improvement this time is the avoidance of positive spin to show a better picture of the economy in order to please the government.

On the positive side, GDP growth maintained its modest pace, reaching an eight-year high of 4.7 percent in FY16 from 4.0 percent in the previous year.

However, it was for the first time in 15 years when value-addition in the agriculture sector recorded a decline mainly due to significant losses to the cotton crop while industry posted a strong growth in FY16 on account of a robust domestic demand, low prices of key raw materials, low financing costs, a relatively better law and order situation and improved energy supplies.

Inflationary pressures eased considerably as CPI inflation almost halved to 2.6 percent in July-March, 2016 from 5.1 percent in the corresponding period of last year. Inflation has, nonetheless, inched up in the recent months due to imposition of regulatory duties on a wide range of items, an increase in gas tariffs, a rise in prices of some non-perishable food items and, a recovery in aggregate demand.

On the external side, balance of risk was neutral in the short-term but a decline in exports, a slowdown in remittance inflows, an increase in non-oil imports and low volumes of non-CPEC FDI inflows could become a cause of concern over the medium-term. Advances to private sector saw an expansion of Rs 249.0 billion during July-March, 2016 compared to Rs 187.6 billion in the same period of last year.

It was for the first time since FY10 that expansion in money supply came more from currency in circulation than total deposits. "This trend, which can be explained by a gradual decline in deposit rates and imposition of withholding tax on financial transactions does not bode well for financial deepening," according to the report.

Budget deficit improved to 3.4 percent of GDP in July-March, 2016 from 3.8 percent in the corresponding period last year due to higher revenues, contained expenses and larger surplus from provinces but the country still needs to make considerable efforts to improve the efficiency and equity of tax system.

Efforts to increase direct tax collections are either inadequate or not bearing fruit. Despite a visible improvement in fiscal account, country's public debt stock increased by Rs 1.8 trillion during July-March, 2016, reaching Rs 19.6 trillion at the close of March, 2016. Within the external debt, overall volume recorded a rise of dollar 4.1 billion - the highest increase since FY08.

Foreign currency loans, together with largely contained oil payments and a weak rise in workers' remittances, however, led to a surplus in the external account during July-March, 2016.

As for the outlook, the government envisages a growth rate of 5.7 percent in FY17 but this will depend on recovery in the agriculture sector and further acceleration in the industrial growth.

A continuous decline in exports is a big concern which needs immediate attention. It is also important to maintain fiscal discipline, going forward particularly following the completion of the IMF programme in September, 2016. In this context, widening the tax base and bringing more people into the tax net should be the focal point. Inflation outlook remains subdued.

There was also a need to pace-up restructuring and privatisation processes of loss-making PSEs besides attracting a higher level of FDI.

It could be said the State Bank had the benefit of the availability of statistical information beyond March, 2016 and as such could better assess and project the economic situation beyond this date.

Although this is true, the observations contained in the quarterly report clearly speak about the candour and a very balanced approach adopted by the SBP in its analysis. Of course, there are some visible improvements in the economy which need to be told and appreciated. Notwithstanding the dissenting voices here and there, GDP growth rate has improved despite a woeful contraction in the agriculture sector.

This has encouraged the government to project a still higher growth for FY17, raising hopes for a modest rise in per capita income and expanding employment opportunities in the country. Whatever the reasons, inflationary pressures have eased and this is a matter of relief to the common man. The situation has encouraged the SBP to soften its monetary stance.

The country's taxation arm's efforts to mobilise a higher level of tax revenues have succeeded and overall fiscal deficit is down. External sector is not doing bad either and foreign exchange reserves held by the SBP have reached a record level.

However, structural weaknesses of economy continue to constitute a challenge for the policymakers; these could frustrate these achievements within a year or two, if not attended to properly and timely.

It is good to see that SBP has not shied from highlighting the shortcomings and tried to unnecessarily cover the deficiencies of economy.

For instance, it has not minced words in saying that investment rate continues to remain low, non-CPEC FDI has not gained momentum, tax base stays narrow despite stop-gap measures, exports have continued to show weaknesses, remittance growth is slowing down and Consumer Confidence Survey of IBA-SBP points towards renewed expectations of inflation, taxation regime relies too much on indirect and transaction-related withholding taxes which are regressive in nature.

The government has been persistently defending its position on the country's public debt stock but the report has noted a rise of Rs 1.8 trillion in the aggregate size of debt including an increase of $4.1 billion in external debt during the first nine months of the current fiscal.

This is of course a huge amount of burden on the country which the future generations have to pay through the nose. The SBP has also remarked that improvement in external sector conceals some major concerns and government needs to focus on the fiscal reform agenda.

If past is any guide, the State Bank's concern about continuity of reforms after the termination of the present programme with the IMF in September, 2016 is very valid. Seen closely, while the Economic Survey released recently by the government had painted a rosy picture of the economy, State Bank's quarterly report has negated such an impression to a great extent and advised the authorities to do more to justify such a claim.

Missing from the quarterly report, however, is any mention or reference to the Brexit which could further damage Pakistan's economy, calling for extra efforts or sacrifices to compensate for the loss due to this negative development.

This may be deliberate on the part of the SBP because Brexit could not be anticipated during the period under review but the UK's Leave vote could have a lot of repercussions for the economy of the country. For instance, GSP Plus status could be under threat, exports could suffer, home remittances and FDI could slow down and PKR exchange rate could come under great pressure.

Not only are country's policymakers required to attend to the weaknesses of economy narrated in the quarterly report, they are also required to deal with the adverse consequences of Brexit.

Overall, we feel that the SBP has made a good effort towards sensitising the authorities and parliamentarians that all is not well on the economic front as claimed by the government and much more needs to be done to rectify the weaknesses in the economy.

Government may be little bit perturbed over the candid approach of the SBP but that is how it should be in keeping with the autonomous status of the central bank and in the larger economic interest of the country.